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tv   Squawk Box  CNBC  June 18, 2012 6:00am-9:00am EDT

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at least for now. the conservative new democracy party coming in first in yesterday's critical election. pro bailout party winning enough seats. we'll have more from michelle caruso-cabrera in just a moment. a global markets getting some relief from news. the major asian markets trading higher overnight. but this is kind of rapidly disappearing. european equities at this point many of them are still positive. in fact in greece markets are up. italy things have turned lower. in the u.s. the futures at this point have been indicated slightly lower at least for the dow futures. this is a mixed picture. flat line. dow futures down by seven. nasdaq up by one point. s&p flat. we'll have complete market reaction. india's energy banks surprising global markets today policymakers leaving interest rates and required bank reserves on hold. they had been expected to go
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ahead and bring those rates slightly lower. the central bank also warning that relaxing policy could worsen inflation. as i said there had been these widespread expectations for a rate cut and we'll see what this means for any other central banks later in the week. g-20 leaders are beginning a two day summit in mexico. the group is expected to push europe for a lasting strategy. right now let's head over to athens and get the whole story out of greece from michelle caruso-cabrera. michelle? >> reporter: yes the world economy lives to see another day, no doomsday scenario, the situation that the markets most feared did not happen, the leftist party that had promised to really go toe to toe with the germans and change things dramatically did not out. so the building you see behind me will likely actually be occupied for the first time in many weeks, sometime in the coming week. let's give the headlines. when you talk to all the pundits on the ground, 90% chance that a
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government actually gets formed this time around. we won't bore you with all the details. watching the sausage get made will be ugly. greece will have a government. german officials have already said all kinds of nice things. they are relieved. they made noise about maybe some leniency for greece. others are saying no. the message is clear that they are happy and relieved by the results. the bank stocks are rallying dramatically. the bankers here feared that if the extreme left did win this election, that there would be bank runs this morning. that's not happening. now last night it was absolute p pandominium. antonis samaras showed up to a crowd of supporters. it was just a free for all as people were trying to get close to him and congratulate him and then of course reporters like us were scrambling all over him as
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well. i had a chance to actually speak with him quite briefly. here's what he had to say. >> we made sure we told the greek people we're anchored within the euro, we believe europe can stand together. >> reporter: difficult to see him in that crowd because our cameraman got pushed back so far by the body guards and crowd. he's a u.s. trained economist. he's familiar with cnbc and wanted to address the cnbc audience. hard sfarts. now they actually got to do some of these awful, well hear people will think they are awful, the labor reforms and the structural reforms. these are the antiseptic word which means really start to reform the labor markets, the labor unions don't have as much control, there's more freedom to fire, drive wages lower to make this country competitive. it will be tough on the people.
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in the end most economists thing that's what has to happen. back to you. >> thanks, michelle. that sigh of relief lasting, i don't even know if we have a sigh of relief because we should go across the pond where kelly evans is standing by with europe's reaction. you have green behind you but i keep hearing things are not so great on our side. >> we can summarize it like this. not a great exit but there is a spannic. that's how you do it. stlnt a problem, a spanic. >> over 7%. >> we'll talk about italy. >> no grexic. you need to do a report? new just saved me a lot of time. for the benefit of offering some detail into what's happened this morning we've been through the
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three stages of euro crisis which is euphoria, panic and repricing. that's what happened. if you take a look here as mentioned advances out pacing decliners. we're up about .2% on the morning. we're off the lows. we're still below where we opened the session. let's take a closer look at what's happening. the ibex 35. the one to watch. down 1%. down 2% early they are morning. the point is we're still in the red despite the greek election outcome last night. ftse here in italy down 1%. in germany the central dax is holding up. ftse 100 in the uk has turned positive. this one has been correlated all morning with the broadly degree of the risk on risk off trade. the story is what's happening in spain. after an initial bout of relief,
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but we quickly seen yields break out to fresh euro highs. 7.13% in spain and this comes on news that nonperforming loans in the country hit their highest levels in 18 years. bad loans amount to 153 billion euros a figure to keep in mind when you hear tallies of what spain may need tossed around. italy over 6 flurries. france benefiting a little bit in the flight to safety move. bund has been more mixed. we can check in, guys on what's happening with the forex situation. we were down almost .8 earlier today. back to you. the bottom line is that after seeing that euphoria and then that disappointment people are already now talking been go central bank stepping up where it seems no one else will and basically back to where we started. at least it seems to me last
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week. >> kelly evans in london. thanks for that. i appreciate that. >> the spanic is on. >> that to me is worst outcome. not a worst out come but still a bad outcome i'm shocked. >> wouldn't we be down if the grexic would happen? now the market is still down. >> this is status quo. we didn't drive the old car into a wall but still left this jungjun junker. >> all we know no one is trading any stocks basically. there's volatility. one reason there's volatility because no one is trading stocks. you got to go way up or way down. >> analysts expect markets to turn positive monday.
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>> yeah, right. >> see how long it lasts. >> spanish bond yields are up. they are soaring. they are going up. >> 7.1%. >> central bankers are paying close attention to the situation in greece. fed begins a meeting tomorrow. steve liesman joins us on the set this morning. we're doing more than twisting or the possibility. >> big debate. the out come of the greek election means the need for global central bank kirs is off the table. still leaves a big debate what individual central banks will do. so in the wake of the election there remains this debate over fed policy. let me show you what's out there. fhe saying we remain skeptical that further fed asset purchases
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are imminent. however we fear a significant correction in the market after an announcement of no change in federal policy. >> don't think the fed will disappointment the market. >> you don't think the markets direct that way? >> i don't think the fed -- >> the fed will do something >> yeah. i just wanted to go through the range of opinions because these are like lou alexander who spent some time. we see them skipping on additional easing at least for now. meanwhile we still see more cons than pros on twist extension. then there's han who said our baseline is a new asset purchase program that involves an expansion of the balance sheet but an extension of the operation twist and/or a further lenting of the short term interest rate guidance. and then high on the list of possible options for wednesday would be an extension of the
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maximum maturity of a discount window loan from overnight to say 90 days. the stock market is one of the few indicators bernanke has going his way. this may not be the time to disappoint. the ecb could cut rates or announce a large liquidity injection but even morrison than bernanke draghi doesn't want to let the politicians thoosk. bernanke has been talking about that. he comes forward with a big ltro. it will make things easier. he's playing that game of chicken with the politicians as well. >> we get all of this add up together. you think that the fed is not going to don't in a position of disappointing markets. does that mean more than operation twist? >> what it will try to do is the bare minimum to satisfy markets. that's a short term extension of twist which will take us to september. let them assess just how weak the jobs be market is. we had this strong january and
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february and things cooled off a bit. i don't think they are quite as weak as they were showing in the 60 to 70,000 payroll range. they are stronger than that. they want to make policy with more data on the table. they tried to get away with the bare minimum. >> can we layer into your timing in spain. how does that change the equation. >> i don't want to be, telling people something they already know. isn't it clear to you there's a liquidity thing and an actual monetary policy thing. right? >> a solvency thing too. >> there's all kinds of things that the fed can do on an emergency basis. they can set up these tabs or other things where they force money out into the system. that's a separate thing, andrew, from what overall policy is. do we embark on a program to increase the balance sheet over
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a 12 month period of time. for spain all they can do right now for the fed is to sit by with liquidity operations. for ecb, you know, i think that they have to see things work out the way they will work out and draghi doesn't want to be in a position to make decisions -- >> i wonder if some of the things you're talking about will come forward. if you think this is a post-labor day reaction. >> there's something to the fed maybe saving some of its power? >> right. for a real event. >> for something that might actually inspire them to jump in. >> how effectless g-20 is. no money on the table. you've seen the headlines. urging europeans to take good action. >> which is what happened last time. nothing came out of it. made them all look a little powerless. >> the strongest position to be is have money in your pocket and not use it.
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>> the bazooka theory. >> to have money in your pocket and not use it. that's power. they don't have it. >> hold on that power didn't work the last time. >> there was no money on the table. >> but i'm saying the bazooka in the pocket -- >> it worked here. >> it worked when you spent it. >> right. >> i'm saying this ad, hank paulson said i have my bazooka. we weighed it. we thought it would take the pressure off. it ultimately didn't. >> but i would disagree a little bit in the sense. what is a bazooka. a bazooka is not the amount of money it is. it's the unlimited, unconditional commitment foornt of the government to stop something from happening. in that case it could be 100 million with a promise of infinity. but that's not what worked. what worked was the unlimited
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commitment. ecb has never gotten there. one of the dumbest things they did the second ltro came through and they said no we're done for now. if you're short what do you do? keep hitting it until they make it hurt for me to do that and they haven't made it hurt. >> that's my point. >> you have money. that's like saying you're a casino and you have a lot of money left, gees, i might as throw it down the tubes, use it. i don't like that analogy. >> you want to come back up. >> because you have it you think we should blow it down the sinkhole? >> to have it and not use it. >> i saw it on draghi. we're not sending any checks. >> you saw what zoellick said. >> you're even saying wasn't' bush appointee. bush's head was on a game of
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throne. game of thrones. >> that was his head? >> they are pulling -- >> saw that. >> pulling it off video on demand. >> they put his head on a stick. >> these clowns. if you've ever been in a prop room where they have this stuff to use when they need it. >> you go every morning into a prop room. >> there's some in there for you. >> as if i need something. >> you need something. but anyway they were looking for heads. to put on. >> just kidding. >> a bush head. a bandanna around it. >> were people upset? >> yeah. when liberals in hollywood put the last republican president's head on a stake, six months going to an election, oh, we didn't see the harm. >> don't think that shows particularly liberal, do you. >> no. i assume anything coming out of
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hollywood is liberal. >> my pleasure, becky. >> for adam sandler and one of the baldwin brothers who is a bible thumper. >> he lost the suit. designee didn't pray quite hard enough. >> i'm wearing his coat this morning. >> what's the deal. >> let's get you through -- >> reports suggest microsoft will be unveiling a tablet computer today to boost its new windows 8 operating system and counter ipad's -- apple's ipad company if activitying kblaed to an afternoon event promising a major announcement. microsoft settling a lawsuit about sponsoring adds. pay retransmit users stroits their friends pages if a usering clicked the like button for a brand the click might show up as a sponsor story on a friend's page. speak being of facebook a front
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page story in today's "wall street journal" saying decision by morgan stanley exacerbated problems with facebook's first day of trading. it was typical behavior. it shut jpmorgan and goldman sachs out of road show meetings impeding their ability to judge the demand. take a look at it this morning. got some good detail in it. >> yes it does. little bit hubris seemed to be there. >> he said something it would be his neck to choke if anything went wrong. >> the whole idea was let meadow everything and if i screw it up it's on me. interesting way to do it. >> it is. i know i said that but, you know -- >> it's nasdaq's fault. >> exactly. coming up, global market reaction to the greek election. why the worse fears might now have been alleviated.
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others could surface. webb simpson winning the u.s. open. fortunately i was there until about 9:15. 26-year-old claiming his first major championship. kind of cool, though. his wife is seven months pregnant and walks the whole course and saw every shot that he hit and he did not disappoint. furyk is solid. they shortened it up and he didn't hit the right drive on 16. but a lot fell. graeme mcdowell i thought he was going win. lee westwood who lost a ball up in a tree. great test. >> check entries. 150 balls fell out. 105. optionsxpress, where you can trade your favorite products,
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back to our top story this morning the impact of the greek election. jen godfrey joins us from london. you know there was a time when we were actually soliciting expressions from our viewers because we were using kick the can down the road so much that we said we got to come up with something else. but we'll take it, right? it's kind of like that again, those isn't it? >> yeah. last time i was on, i was actually on, i think it was wix. talking about hair cuts.
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like a bikini wax. things are more painful than they were before. what we saw initially especially in asian markets a rally. it faded. the reason is that a clear path, a clear road to recovery remains elusive. new democracy has come in and now the pro euro investing. but a coalition still needs created between parties that are bitter rivals and they need to prove they can govern in the face of painful austerity and keeping in mind they have been held responsible for creating the crisis in the first place. finally they may still seek concessions. >> well, i mean can you play out the next country to focus on, i guess spain today also italy, right? >> exactly. i mean the focus has gone from greek elation to spanish
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suffering. and spain is a prime example of how continuing to bailout the country actually exacerbates the struggle. what we saw was europe coming to the rescue. there was a lack of stringent terms in its bailout. first it will encourage more countries to come forward for bailouts and secondly countries have already had a bailout and they are being held to tough austerity measures as we saw in greece more encouraged to renegotiate. this creates a lot of confusion in the markets and until we see confidence the markets are going to remain volatile. >> i wonder if the other, if the other party had won in greece, maybe germany would have had to take more seriously easing up on some of the stringent austerity. now basically they have the upper hand and there are those that argue the tough terrify austerity the less likely greece ever comes out from the other
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side. so i wonder how you really -- so many different ways to handicap it. >> exactly. both parties were looking for concessions and that was something that was quite mixed investors were looking for that. it's a case that concessions, contagion and potential banking collapse is still in the cards. and what we're doing is el elongating the process. fill we see more fiscal unity there's potential for exit from the euro. >> i think the best thing we got out of this, we were looking for some other way about talking about kicking the can down the road. we heard about hair use. when you think about hot wax, you rip it off, don't you like in 40-year-old virgin. >> much more painful. much more visual and you get the whole picture little beads of
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blood. >> you're talking up here. >> yeah. right. that's the only time i've seen a man -- >> it's the case of also being literally very close to a black hole and in physics space and time and the closer you tore a black hole slower time is. all i can say political leaders at the moment time is going slowly for them. >> love that one. >> can you throw that in the mix. >> time dilation. one of the things described by, is it special relative activity or general? it happens near a black hole, length contraction. excellent. this is like a slow moving train wreck watching this happen. the house is not burning. >> let me ask you. soros thought three months. is there any time frame that you can put on it from watching the market's reaction to what happened last night
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>> the election has definitely delayed things. before that standard & poor came out and said there was one in three chance of a greek exit in the next fuse months. for them to come out is strong that there's a significant chance. that warrant as lot of concern. now that this party came in and said they are pro euro that may slow things down. crucially, we need to see, you know, a greater fiscal unity within europe before we can actually see any delays. what will happen and again this is what to watch at the g-20 is watch for the strengthening of the fire walls and when europe is confident that their fire walls are in place and the banks are supporters then all these threats about greece leaving could gain a lot of credibility. >> thank you very much. we appreciate it. when we come back we have an insider from business insider with his eyewitness account of the election the whole world was
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♪ you are ready for primetime. there so. that's the guy who is in -- i asked for you specifically to be in that promo for kudlow. keep the coffee coming, mac. there he is. my man. all right. good morning. your happy to be in that or not? okay. good. then don't act like you don't want to be in now. >> you cut him off guard. >> welcome back to box here on cnbc. i'm joe kernen along with becky quick and andrew ross sorkin. you know, you don't even have to
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talk. making headlines, fears of an imminent greek exit or grexit are receding now. new democracy party came in first in yesterday's critical election. pretty close. couple of points. these messed up systems where you got to make these alliances with total different ideology. forming a joint government for now. live report from athens in just a minute. elsewhere denmark's central bank chief warns that the danish krone is coming under pressure. northern countries are doing so much better. what do you do? how do you manage that? i like watching the uk give all
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this advice to the rest of europe. it's like to what i say not what do i. they are so far away from adopting the euro. investors are betting that the crisis could crack the piig that the crisis has had. monday in june, so the supreme court is expected to issue a number of rulings today. we're still awaiting a decision on the constitutionality of president obama's health care legislation, the affordable care act and the legalaity of immigration law. for some reason -- >> if you do -- if you were the supreme court and had a choice -- is that the g-20. >> i read stuff over the weekend that said a ruling is expected in a little over a week. they were saying that explicitly over the weekend. you saw ginsberg's comments. >> it could be the 25th.
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>> before the end of june. well today is the 18th. >> talking about the same time frame. >> probably next monday. i'll recuse myself. i won't be here on that day. >> you decided? >> i'll let everybody else argue. >> you will be here monday morning not just tuesday morning. >> i won't be here all week. >> just call into the show. >> no oil let everybody else argue and have all the throwing eggs and everything going on between the two sides. i don't need to be involved in all that partisan bickering. either way there will be a lot of -- isn't it? >> let's get a check on the markets this morning. we did see a large relief rally at least in asia based on this idea that greece would come through. that's petered away. the dow futures are down by seven points. s&p is flat. oil prices, if you want to take a look right now are down by about two cents.
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standing at at 84.01. again a lot of people trying to figure out what this all means, what the longer implications are, the longer problems in greece as a whole. what central banks might or might not be doing about it. there's expectations that perhaps you can see some sort of an announcement coming out of that. but the good news is, yes, it was not the worse case scenario but the bad news is there are still some major problems to be fixed. the yield on the ten year is at 1.584 pores. if you were watching in spain the yield there is above 7%. indicating that the markets there are are still looking at massive problems particularly in spain. you can see right now the dollar is stronger across the board, which is right now the euro trade right at 1.2641. the euro got some relief after this greece announcement. it was trading higher against the dollar.
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dollar/yen at 79.09. gold prices are down by about 4.9 to 1623.20 an ounce. >> let's get back to this morning's top story. the greek election. i was just reading where you wrote the half life of a european relief rally is now down to 15 minutes european markets getting crushed after greek election. what is the feeling on the ground there? in term of the fact that this relief rally if it is a rally, was a relief rally has sort of disappeared. >> reporter: yeah. i think basically the feeling is that, okay, we averted the worse case scenario which was a potential conflict between the greek government and the rest of europe over the bailout. now we might have a government that might have slightly less of
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a conflict but still this new government is not expected to have any real lasting power, it's going to be a very tenuous coalition. nothing is solved. could it have been more disruptive than it was but it's really not -- greece is nowhere closer to some sort of resolution. >> when you say nowhere close are do you have a timing? we've been talking this morning about george soros said you got the summer, you have three months. is there a sense on the ground where things stand? >> the timing people are talking about is not how long does europe have to solve this crisis, the timeline that people are talking about here is how long can this current greek government if it forms last. one. ideas that has been floating around a lot the left wing leader tsipras didn't want to win. he can sit back, watch new democracy flail around, come up with another bailout that will
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be very unpopular, watch the economy sink further and maybe, you know, have a new election and i've heard as little as in four months, as long as eight months. that's the timeline people are talking about here. >> what is the sense, though, when you talk to people and you just walk around about austerity and austerity measures and being willing to take on those measures, obviously they now voted for a party that at least wants to participate in all of that but there's always been a sense that maybe they don't want to participate enough. >> well, what's funny, and this is something that surprised me, is everybody here admits or everybody i've talked to admits that public sector is too bloated, that there are way too many people work forge the state companies, bureaucracy and so on and there needs to be significant reform. where i come from i'm used to hearing people talking about macro situation, austerity, what the ecb is doing, germany, in
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greece there's a lot of frustration in the internal government and how many years the government has grown in the level of corruption that's associated with. >> how many people do you meet who are unemployed? >> identify met a fair number of people. i don't know the exact percentage. there's nobody who hasn't been significantly hit by the crisis. so either they have a relatively unemployed or their own business is down 70% or 90%. the economic devastation, there's no exception to its. yeah. it's pretty remarkable. but people get by. that's one thing that needs to be emphasized is people have a good sense of humor and people are still going out here and they are in the coffee shops and bars and watching the soccer match the other night against russia. it's economic devastation. they have money.
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but not much. but people, you know, people moved within their parents and so on and so forth, saving whatnot. definitely, definitely been very painful. >> joe, i don't know when you're coming back. good to see you. keep watching you on business insider. appreciate your time this morning. >> if you have any comments or questions about anything you see here on "squawk" e-mail us. still ahead we'll talk more about markets on the move. we'll head to the trading floor in chicago to get reaction. first though we have some morning sports buzz. miami heat rallying from a 10-point second half deficit to beat thunder last night. the heat take a 2-1 series lead in the nba finals. we'll have more "squawk" right after this. tdd#: 1-800-345-2550
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u.s. equity futures not showing what you think. nice pop after we averted or avoid worse case scenario in greece. making headlines, madagascar 3, europe's most wanted taking top box office for second week in a row. i didn't go. there's some golf tournament was on with 35.5 million. "prometheus" taking the number
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two spot for a second week. that's the alien prequel. >> i was going to see that. >> it made it a lot deeper than he had to do. yeah. he did the first one, i thing. cameron did the second one. then the third and fourth were forgettable anyway. but, i don't know. this one, i want to see this one. see it on the big screen because it doesn't translate well. >> first movie we're breaking out. >> i haven't used it. >> wear the glasses. these days with the big screens. >> you know where i'll go with this. >> going to get some music going. >> so you have -- >> i've tried the service. i've tried the glasses. we watched -- no. we did.
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careful. >> what's the famous one that everyone watched. >> "deep throat." >> let me save you. >> not david cameron. >> the blue people one? avatar. thank you, casey. >> "avatar." >> there's a place where i had nature and harmony and then the fair and balance. >> exactly. >> social justice. >> all right. >> you liked avatar? >> i did. >> as we mentioned you're not seeing that pop you might have expect when the elections twent way that most investors had been hoping in greece. joe, what do you think happens here? did this surprise you to see the elections go this way and to see
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euphoria and 15 minutes later you're watching flat markets? >> it was very short-lived wasn't it, becky. not completely surprising only because we're only sort of halfway home. what i mean by that we have the former government that the rest of europe feels can do something, get things done and that they still want to lend money too. this was a great first step, obviously, but really a lot of the hard work is yet to be done and in terms of getting cooperation among all these different factions within greece. as i said, i still think there's a lot of work to be done here. wouldn't surprise me to see us actually kind of drift further lower and one other thing to keep in mind right now is that with expiration last friday a lot of positions got cleaned up. i think a lot of people kept their powder dry so is to to speak to see what happens over the next couple of days, how it will shake out. with the fed meeting on wednesday there was all this expectation that they may hit
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the qe3 or have a qe3. they are going have to take a look at the elections and see if they want to do that. if they don't hint that way we could see a sell off because there's an expectation that they will do so. >> that's what steve liesman told us earlier. he thinks the fed won't want to disappoint the markets. maybe you'll see an extension of operation twist. if that's the case is that enough for what's already baked into the market? >> i think the fed is in a little bit of a no win situation here, becky, because the election went as the pept wanted to it do for the health of the eurozone. fed probably doesn't have to do quite as much. do they go out and use one of their last weapons. evening doing qe3 it will have a tough time having the effect.
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either way i think the market will be disappointing. >> joe, thank you. >> always great. take care. >> coming up we'll be fleeing to set and heading to the chairs to talk about the stories that have us squawking the morning. including one of joe's favorite stories the cincinnati reds beating the new york mets 3-1 to complete their first three game sweep in new york since 2001. the reds have won six straight matching their longest winning streak of the season we tip our hats to mr. kernen. first place. >> four up. like four games. [ male announcer ] this is corporate caterers, miami, florida.
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welcome back. we're in "chairs" not the chairs. i didn't realize we were talking about the reds i didn't realize the yankees, eww, won nine straight and well in first place, after i've just been reading the articles at this point in the season they're supposed to be doing better. >> the mets helped them out, they beat the guys who were in second standing. >> and they must have, because they got nine straight. michael thompson, if you were watching the open you know what i'm talking about, on 17 as he was finishing and finishing way
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before anyone else he had about a five-foot putt which would have put him at 1 over and then he did fine on 18 and that would have, he would have been in the clubhouse with a score that those guys, the announcers, peter jacobson is just awesome. he's a friend but so good, sort of offsets johnny miller who says anything. he has turret's. i love johnny miller but if i were one of the players and he said something like he says about these guys i'd want to kill him. >> it's fun as a viewer. >> jake is the best, he's awesome, great job by nbc. >> tough, tough course though. >> unbelievable. on the side of cht hithe hill, weather yesterday had to hit it through the fog. you watched a little. >> i watched a little. >> nobody picked webb simpson, nobody said his name until the back nine of the final round. another quick story, this one is fun in the "new york
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times" newspaper work with buffett as boss. what it's like to work at a newspaper now that he's bought up the newspapers with him as a boss. "buffalo news" used to make $55 million. this year just under $10 million for the first time. they said he's completely hands off, doesn't get involved in just about anything, it's sort of what you expect out of buffett. >> given with the companies that come into berkshire. >> we were at the annual meeting two or three years ago and he said newspaper businesses are luzy businesses and recently he's gotten into the newspaper business. it raises questions what is his secret sauce and what is he going to do to get these back on track or are they profitable enough long-term? >> he's looked at community newspapers and small town newspapers, very different than the bigger city ones because you have people who read this every day to find out what their kids are doing in high schools, you want to know what your neighbors are doing. it doesn't happen.
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>> the margins have compacted but it's an interesting bet so us folks who come from print. >> i just wanted to point out a story joe mentioned earlier on c1 of the "wall street journal" investing section there talking about how even with all this turmoil, even with all of the volatility we've seen in the markets, if you were actually looking, the average daily trading volumes for stocks and bonds dropped as all the concerns about europe built up, for the nasdaq down 10%. 9% on corporate bonds. is anybody out there? >> all of these things are long-term setting up for finally another move in the stock market. after 12 years there's nobody interested in buy and hold. all of the 30 years old have no
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interest in the stock market by now. >> takes capitulation. >> people say i'm never going to do that again ever. ge is at 20. when it gets to the 20, not that it's representative of the entire market but if bonds ever go down, if the ten-year ever becomes something where people say i can't take it anymore, finally. >> that's when. when we come back more on the greek elections and the global market reaction. plus why the investment world can't go a day without worry. spain is the next concern. we'll talk about the yields there. stay tuned. how does this thing work? oh, i like it! [ garth ] sven's small business earns 2% cash back on every purchase, every day! woo-hoo!!! so that's ten security gators, right? put them on my spark card! why settle for less? testing hot tar... great businesses deserve the most rewards! [ male announcer ] the spark business card from capital one. choose unlimited rewards with 2% cash back or double miles on every purchase, every day! what's in your wallet?
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here's your invoice.
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the results are in over there. >> it is just a zoo, as he is surrounded by hundreds of admirers. >> find out what happens to
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stocks over here. >> congratulations. >> by the way i watch you. reaction from a former u.s. ambassador to germany, greece, the eurozone financial crisis and the impact it could have on america's ties with europe. >> and what the results could mean for the central bank's next move. the second hour of "squawk box" begins right now. >> good morning, everybody. welcome back to "squawk box" here on cnbc. i'm becky quick along with joe kernen and andrew ross sorkin. we've been following the greek election results and the market reaction. dow futures down 17 points below fair value, down 34 points overall without the fair value and that's a surprise to anybody expecting at least a relief rally from the markets. we'll have much more on that in
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a moment. microsoft set to make a major announcement, most analysts expect it to a new tablet computer designed to support windows 8 operating system and to compete with apple's ipad. we have an economic number on the calendar, the national association of homebuilders is out with its monthly sentiment at 10:00 eastern time. india is surprising the markets leaving interest rates unchanged. many investors had been expecting a rate cut but the country's central bank said cutting rates could worsen inflation. let's head to athens and get the full story out of greece, what happened over the weekend and what is happening today from michelle caruso-cabrera. miss cabrera, what do we make of all this? >> hey there, andrew. the worst case scenario did not happen. the worst case was the leftest leader who wanted to go to toe
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to toe with the germans, renegotiate the bailout, repudiate it and the debt he did not win. the pro-bailout party won. look at how greek bank stocks reacted. the rest of the rally around the world appears to have faded in greece we see those rising higher. when you're only 85 cents, a ten-cent move is a huge percentage move. they feared if the left won thiswould have been bank runs. the leader of the new pro democracy bailout party won he was in the square beneath our hotel, complete pandemonium, lots of excitement from his supporters. keep in mind even though he has the job and they're celebrating, there is a lot of work to be done. they've got to make more budget cuts and have to do some tough things for the greek people including lowering wages and they're going to try to renegotiate this bailout to make it easier on the greek people. samaras is a u.s. educated
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economist, stopped to tell us that greece was committed to sticking to its prior promises. >> what is important is that we're going to do our best to have in this country social cohesion with development, follow exactly what we're supposed to follow, honor our commitments, but at the same time allow for growth-oriented policies that will allow us to recover. >> i realize it's difficult to see him but you could hear him. he said he wants more growth oriented policies, that's part of the renegotiation of the bailout with the european union trying to get keynesian style deficits. the european union is relieved it's him and not the other guy and the irony, guys, a year ago
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the european union hated samaras because he didn't want to raise taxes and now they love him because he doesn't look as bad as the other guy. >> in terms of the renegotiation, his supporters all expect there to be a pretty major renegotiation but at the same time angela merckle is not making noises like that's something germany is expecting. >> look, there's two different ways to renegotiate. the other guy didn't even believe in any of the underlying premises of the economic images, he didn't believe you needed to lower wages or cut spending, didn't want to do anything that a lot of economists need to be done. samaras believes in the underlying prinz. he's saying they're going to be recessionary. we need more time. don't make us have a balanced budget by next year, give us two years, three years because you
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know what happens when you raise taxes and cut spending. the fundamental changes that need to happen to the economy in theory he's a believer in them even though we haven't seen a lot of change in the last several years but maybe the vested interest will back down. >> michelle what is the mood there today? what is the sense you get? i've heard a lot of different things. >> some relief for sure, definitely among the bankers. last night, we all bring our american contacts when we're here. where is the post party? they said we've never actually done that here in greece and we're not sure there's anything really to celebrate anyways, even if we win. >> michelle that guy you had on who got a lot of people were fascinated last week. is he like, is he just like a normal sort of moderately left of center guy over there? is that what we're talking
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about? >> yes, he's more moderate than the communist party. i should have brought the communest party paper with the hammer and sickle on the front, every morning it comes out. there are still communists in greece. it's hard for the rest of the world to believe but there's a communist party, there's a slightly less communist party. let me see if i have it here. i can show you. is he a moderate? he's a comparative moderate compared to the communists. they split so can you see the hammer and sickle? if you drive over to the university you see the hammer and sickle in many different places you see a lot of communist party propaganda. there are people here who are nostalgic for the soviet union if you can imagine. i wouldn't call him a moderate. he's not center left but he's not the most left guy in the business. that's for sure. >> it shows you that europe -- it still is a lot different
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than, because he just basically, he felt, he didn't even feel, he didn't question when you asked him, oh, yeah, socialism is a better economic system than capitalism, because it promotes social justice. so it's not like even he thought about whether saying that would be strange or not. >> absolutely not. lot of folks we hire, socialists, communists, et cetera, it's not uncommon, and the people who are libertarian or free marketeeres are frustrated because they feel the most right party is as pro free market as they ought to be. >> okay, that was fun, just watching that, you know. it's sort of a sport almost watching it. thanks.
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>> all right, greece's pro bailout parties may have turned in a weekend victory but analysts warn the crisis is far from over. joining us from berlin is john cornlum, chairman of lazard germany and now he's senior counselor at the law form noere. thank you for joining us this morning, mr. ambassador. >> my pleasure. >> we know the worst case scenario has been avoided at this point. do you get the sense that germany will reward the greek voters by giving them some of these conditions they're hoping for including more time to pay off their debts? >> well, there's no sign of that yet. they're holding firmly to what they think is the right course to take. sign this morning the foreign minister not involved very much in this policy-making said he thought it would be possible to give greece more time and he was contradicted by the chancellor
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and the finance minister. germany feels that they have to maintain a stable foundation and they will make compromises only after they get their preconditions for compromises achieved. >> what do you tell the greek voters at that point if they say we're willing to work with you but we need more time? we voted in the party who we thought was willing to work with you. the other party that almost won and came very close would have said forget it to all of you. we're out of the euro. would germany say that's just as well, go away? >> no, i don't think so, but don't forget there's not a government yet. what happened was that one party got the party that everybody wanted got the most amount of votes and they have to put together a government and the government has to say what their approach is going to be. also don't forget there's a g-20 meeting starting i think today in mexico which will say a lot of things about this and also an eu summit coming up.
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so the greek election was an important point but it wasn't so to speak the end point. it was probably just the beginning of the real bargaining which is going to happen. what has happened in the past i'd say for weeks is the idea there has to be some kind of growth policy, some kind of economic simulus, started to be accepted in the public debate, six months ago that wasn't accepted. >> ambassador, layer in the issues of spain and italy. we've seen the ten-year on spain today, over 7%. is it possible we're going to need a second ballot if we think we got a spanish bailout last week before we get to some of theish auto issues that need to be addressed in greece. how does it do whether they end up seeding or how we do with italy? >> you put your finger right on the questions. there's a fairly wide consensus now. you can see statements in the press by john zelick and others
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that the so-called bailout of the spanish banks didn't work and spain isn't in much better shape than it was before. the rates in spanish bonds went up this morning in trading. in italy you have a sense they're next, this is all going to come crashing down so one of the reasons why nobody on the european side especially the germans want to make too many concessions or too many steps forward is because they don't really know what they're dealing with, what they're going to be doing this into and hopefully they are all hoping that the discussions of this week, the formation of the greek government will help them get an idea of what to do. >> what do you think the next step is? obviously we have the g-20 meeting but who blinks first? >> well the next step is unfortunately what the last ten steps were. i think that's one of the reasons we're in this crisis. europeans over the years have learned not to take decisive action because that somehow
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upsets their european apple cart so they take incremental steps and where it took the united states, how long did it take to do the t.a.r.p. program, six weeks or so, right about now they're coming up to something which reflects the top program, that's almost two and a half years ago. i personally think this is the major problem here, the euro is flawed. the united states thought from the beginning it was flawed but intelligent people with taking decisive action could probably help it get through okay. the point is decisive action has not been taken so the markets always sense if they just push harder they'll get a little bit more and so far they have. >> is there a growing sense of urgency at least in germany? >> there's a great sense of urgency here. people are starting to understand that they may be near the point of no return, but at the same time, there's urgency with a sense of immobility, that
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is the german government, chancellor merkel continues to put forward the same basic demands, if you wish to call them, program, that is there has to be first a european budgetary arrangement, there has to be something resembling a european government and then they can move to the other policies where most other people feel that demand has passed and time for urgent action. there's a sense for urgency but not necessarily a sense of action. >> ambassador kornblum, thank you for speaking with us. >> thank you very much. >> i don't know if i feel more hopeful or i feel worse. >> merkel has to deal with her constituency, the new greek elected officials have to deal with their constituencies. can they make it happen? if you have comments or questions about anything you see on "squawk" including the conversation we've been having, shoot us an e-mail is our address
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and also follow us on twitt twitter @squawkcnbc is the handle. still to come we'll talk more about the eurozone and you, what u.s. investors should know about this weekend's greek elections. worries about spain and much, much more plus a stock story crossing the wires just a few minutes ago, petsmart increasing its quarterly dividend by 18% and announcing now share buyback. first the sports story, webb simpson winning the u.s. open, 26-year-old claiming his first major championship at the olympic club in san francisco. tdd# 1-800-345-2550 the spx is on my radar.
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checking the checking the futures right now we've been down about 20 points or so. we will gate some economic data later that could affect things, that's less than 0.2% on the -- becky. you just ignore it. >> the spanish bonds, i'm not going to read it. >> always small. >> the yields on the ten-year spanish 7.141% so it's been growing through the course of the morning. >> yes and bonds going down and yields going up. >> what is our ten-year? >> 1.5 something the last i saw. >> i have to refi again. facebook is settling a lawsuit regarding ads that it called sponsor eed stories.
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it allowed companies to repay to retransmit activities to their friend's pagers. if the user clicked the like button it might show as a sponsored story. the guy that came in here sold the notion that that was really going to work. i said i don't know, that sounds like an infomercial. no one, except our great in infomerciinf infomerci infomercial. no one watches them. >> i do. >> you've never seen an infomercial. >> ginsu knives, proactiv. insanity or the other workout one. >> you might work the workout ones. >> my brother has it. >> people watch this stuff. >> speaking of facebook a front page story in "wall street
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journal" says we have three people in the last month say exasperated and they meant exacerbated, smart people, not going to mention any names but everything they said after they did that i discounted. the paper says morgan exhibited some atypical behavior as an approach. for example it shut banks morgan and goldman sachs out of meetings and that impeded the bank's ability to judge demand for the offering except they did so, they judged the man pretty good for mark zuckerberg and sold it, this was the aftermarket demand that wasn't judged too well. they got the shares out the door. >> goldman sachs and jpmorgan should be happy they can say that so they don't have the blame by themselves. where do you think the information is coming from, fyi. >> really? >> it's for your fyi is the way
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i like to say it, like today's stock du jour. single best idea. >> i like that value added tax tax. when we come back, beyond europe, signs that china's central bank is having an impact on its domestic economy, also some comments that president hu of china made before the g-20. and then in the next half hour, g-20 political leaders meeting in mexico. top business executives, one of them is terry mcgraw, joining us live from cabo at 7:40 eastern. stick around. ♪ ♪ [ male announcer ] not everything powerful has to guzzle fuel. the 2012 e-class bluetec from mercedes-benz. see your authorized mercedes-benz dealer for exceptional offers
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welcome back welcome back to "squawk box." making headlines, china's home prices dipping for the eighth straight month in may. recent monetary simulis i stimu rebound. slowing chinese growth and fallout from europe's sovereign debt crisis, joe back to you. back to the euro cries, julian callo head of european
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economics, we talk about the half life, that was a pretty good line from one of our guests earli earlier, the recovery half life getting shorter and shorter. in spain the ten-year is up at 7.1 so we've moved past the greek election and we're already worried about spain again. >> yeah, i think that's exactly right, and i think the markets are aware you've got the g-20 meeting happening but really what can the g-20 do at this particular stage? there isn't the room on the facical side. the u.s. has its own issue with the fiscal clip and europe is in the midst of a very deep degree of fiscal consolidations, very different to the way the g-20 was meeting late in 2008 when they announced a big fiscal stimulus. on the money tree side there are limits to what could be done. we think there will be a few things coming out of the fed
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including on wednesday this week, we think the ecb will be cutting rates in early july t meets july the 5th. we think the bank of england will be announcing another easing program of 50 billion pounds. there's a few things to look for. in terms of having the big bullet here that could really drive investors to put on a lot more risk, well it's hard to see what kind of developments you're going to be getting, going to generate, because of course with greece itself, there's still a lot of question marks. we've had a bit of resolution. let's just be thankful from the market perspective that the election outcome wasn't a lot worse because we would have thought that the markets would have done a bit better based on the result that we had. and it just goes to show that investor anxiety is really quite high because there's not a very clear outlook there. >> julian, if you look at the spanish bonds yielding 7.133% for the ten-year. we always thought 7% is the
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breaking point. what does this mean today? >> i think it means something is going to have to happen to resolve this in the case of spain. now, what we had seen last year was that the ecb came in, in sizeable volumes of spanish debt but that hasn't been happening and the markets have increasingly been aware there is that reluctance of the ecb to step in, and hence yields without really i think a lot of underlying flow but yields have been creeping higher and indeed even about 6.5% for us, that is a crucial threshold for spain. of course, there are going to be a few extra developments. we'll have the more detailed results by the two private agencies of the spanish bank capital needs that will be published later this week, but really, it is going to require something quite decisive to step in and turn this around for spain in the form of some kind of intervention i believe, possibly it could still be the ecb although the big question is
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why has it not happened yet. i think one reason is of course that you have the eu leader summit coming through on the 28th and 29th of june and the ecb is trying to put a lot of pressure on the leaders to actually come up with a road map here for fiscal union. >> julian, we appreciate it this morning. see you later. >> thank you very much. up next he spent 18 years at the fed, now he is leading citi's group economist with a focus on international forecast. [ donovan ] i hit a wall.
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welcome back to "squawk box," everybody. in the headline this is morning, even as investors breathe a sigh of relief over the greek election results, borrowing costs continue to rise both in italy and spain, that is very concerning. the spanish ten-year bond back over 7% this morning, a level a lot of people think is unsustainable, and something has to be done. so that's part of why you're seeing so much pressure on the futures prices here this morning. verizon is cut willing the price of its fastest internet service in half as it gets set to introduce a faster offering. customer also now pay $99.99 a month for its 150 mega bits per second service down from
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$209.99, a price of a new 300 mega bits per second business coming out now. if your parents are baby boomers you may not be able to count on an inheritance. 55% of baby boomers consider it a priority to leave money to their kids, that compares to 75% for younger parents one in three would rather leave the money to charity than to their kids. andrew? >> wow, i don't know how i should take that. more now on the economic impact of the european debt crisis. cnbc senior economics reporter steve liesman joins us this morning. >> with concerned fading after the greek election the markets focus from the need friday coordinated global central bank action to individual bank action. those say they could do nothing, others looking for a modest extended maturity at the discount window, say 90 days, some talking about extending twist, extending the guidance
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and of course more qe that could involve additional treasury or mortgage purchases. here's goldman's take our baseline is a new asset purchase program that involves an expansion of the balance sheet but an extension of twist and/or further lengthening of short term interest rate guidance and lou crandall writes in, a shorter operation twist totalling $150 billion for the next three months and to indicate that further purchases would be reviewed at the september meeting. let's take a look at what twist looks like. here's a visual representation of twist, the federal reserve selling one to five-year notes and buying five to ten-year notes. that's what's happening in the fed's balance sheet, that overstates their ability to do additional twist. the white line is the 500 billion level. you talk about short term inside they have about 250 there. to the balance sheet over that period of time, the drum roll if it comes up would be nothing. so they started doing twist and basically they're selling short
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term securities, buying long-term, keeping the balance sheet about the same. one other look at the ten-year note, what could the fed do that the market hasn't done for the fed already? you're off about this year i think it's about, from that chart there, which is what, that goes back to january so it's about almost 150 basis points. pes that he a pretty powerful move. some of that will be twist and some of that is the market reacting. ecb meeting thursday, wednesday and thursday, the fed thursday the ecb, lending rate at 1%, they have a rate to cut, they have the option of pumping more liquidity into the system but many economists believe mario draghi will be reluctant to take action because we're talking about banking union, fiscal union. they cut rates but everything is okay, they don't feel as much pressure so they do less. >> we talked to someone who is standing by at the cme, joe
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keniken, he expects them to extend market twist. how effective is operation twist? >> i don't know. >> i haven't gotten a sense that anyone know. >> bernanke doesn't know how far off he is of the number. what is the value of the guidance. is that a 50-basis point cut? what about twist? nobody really knows in this huge avalanche of rates we don't know if it's effective. the reason i laugh, though, becky, it would certainly do something, right, in that it would be effective in not upsetting the market. just giving them something. its way they let our expectations, fur owed survey showed 60% of the market willing
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to do something. >> you have to let them down at some point? >> you think you let them down ahead of the meeting, not at the meeting. maybe some others have some other ideas. >> let's bring somebody else into the conversation on this greek election from a man this actually a man who had the ear of chief bernanke during the start of the euro crisis, nathan sheetz, former director of the international finance division at the fed now at citigroup, he is the global head of international economics. good to see you this morning. >> good to be here. >> straight up and down question, joe said it right, i don't know if we said it on the air or during the commercial break, talking about fixing europe and you said there's no money left. >> you would like to do haircuts but then if you do haircuts then of sonch debt the banks get screwed because they're holding the sovereign debt and there's no one to buy the future sovereign debt. they need growth and there's no prospect for it. >> if you could be king for a
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day is there something you actually think you could physically do to fix this problem? >> i still believe that europe as a whole is solvent, so that if you can draw on all the resources that exist there, including in germany and france and finland, et cetera, et cetera, that you can solve this problem, but that's very much going to take solutions that are big like euro bonds, common deposit insurance schemes, common bank resolution schemes and the like. >> is there anything draghi can do on his own without a grand or fiscal compact? >> draghi can buy time. he can help resolve market stresses and the like, so if draghi were announcing a large bond purchase program would that have a positive effect on the markets. would that prove to be the ultimate solution to the problems europe faces i don't think so.
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>> they're fixing everything by lending more money so debt is getting bigger. sooner or later the northern countries' standard of living will go down. >> ultimately that's true. that's why we need structural and fiscal reforms. >> in the club med countries. >> short circuit that process. if we just let the southern european countries debts grow without limit eventually europe as a whole will be -- i just don't think we're there yet. >> just sign on to all of this, they're signing on, working their butts off and have their own standard of living go down to bail out the profligate places. >> i very much understand the german hesitancy here. the euro bonds and deposit insurance schemes mean germany is writing the check. germany is getting something out of the euro, make no mistake that the euro is much, much weaker than if germany had its own currency. >> should the ecb just print
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money? >> i think in this circumstance for europe there is a very strong case for the ecb to be even more aggressive than it has been. i very much understand the argument, appreciate the argument that draghi is being hesitant right now because he's trying to get the heads of state to move as aggressively as they can. >> do you think privately bernanke is whispered the same thing you just said allowed to draghi and others? >> i think it's very much the view of a number of central bankers that the ecb needs to be more aggressive. >> what should the role of the u.s. be in all of this? you see tim geithner and obama play a more proactive role? >> i very much think they've tried and europe does not appreciate the guidance that it's been getting from the u.s.
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authorities. in fact sometimes they move in the opposite direction so i think they're working behind closed doors and doing what they can. at this stage the u.s. helping to solve the problem is limited. >> when you say we're not going to give any more money to the imf. >> maybe there's more carrots we can utilize in leveraging. >> thinking of an analogy, draghi is like he has like plosser and lacquer but the difference is they'd be the powerful guys on the board. they call a lot of the shots over there so it would be the same thing, they are and they will write the checks. first of all i'm saying the imf and the head of the world banks, said the same thing, he was appointed by bush. >> you put a new nuance on it,
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we'd use it to extract -- >> that's always what i said. i've said this for a while, first of all the idea of the world coming together and getting angry at europe might push them to actually do something. you fix this or we're going to come in and fix it for you and i've always said what the imf money can be used for is to say whatever you guys come up with, we'll be a third of that, we'll be in the second loss position. you take the first loss. >> doesn't sound like -- >> it's embarrassing and geithner addressed this. >> the imf doesn't sound like you're angry saying you need to do something. you're a father, all right, son, i have a 50,000 credit card bill, here's another 50, but please, do some stuff i want you to do. >> who is it who went to after he gets busted in "good fellas" "i'm so embarrassed" and then takes the money. remember that? i'm not angry but hey, we're just, this is not tolerable at
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this point. >> so we're going to write a check to the imf. >> i agree with steve that the world is powerful. the u.s. leverage is limited. >> chinese and brazilian money. >> putting a lot of money on the table, that may be a way forward here. first best is the europeans solve their own problems. >> agreed. >> but maybe it can facilitate a solution in europe. >> i have a markets related question if i could which is the divergence between the stock market which is sort of expecting almost the best and the bond market which seems to be expecting the worst, which side of that do you take? when you look at this whole situation? >> there is a case independent of the bad macro. the u.s. corporate sector is performing very well, notwithstanding the stress.
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there's a case for the current level of valuations. that said, i think there is a lot of macro stress to come. i think it's basically a 50/50 proposition, whether we see greece still in the euro area in six to eight months. >> it's not going that great. >> it goes like this. >> but it's the microversus the macro. >> the market yield is above the ten-year yield and they're still not buying it and it's the same place it was 12 years ago. >> did it bother anybody over the weekend the fate of the western civilization rests on how the athens suburbs voted? >> i saw that note. >> it didn't bother you? made me crazy. >> it's the size of delaware. >> thank you, nathan, come back, we've got more questions i'll ask you off camera. global business leaders are in cabo to discuss economic
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is b is b next to g, not really. it's the g-20 group of business leaders. >> yes, it is. >> so it's right underneath it, it's a possibility. the g-20 meeting in cago, mexico, sorry, cabo, top ceos offering recommendations from the international business community. terry mcgraw, chairman, president and ceo of the mcgraw-hill companies. i saw your wish list for global, for the world really and for corporations and the world and what we need to do. it's a beautiful thing, it's a perfect world if we could get stronger deeper capital markets, break down all trade barriers and forget the third one but what a wonderful world it would be, but what are the chances we can do this? >> oh, boy, joe, i'd sign up for
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that one in a minute. good morning to all of you. this is another opportunity, the g-20 which is evolving in terms of process and procedure and all of that has a very, very big agenda, and what we need to really do is focus that agenda to make sure that we're focusing on the most important things, which are those things that are going to bring us economic growth, and then obviously the job creation and prosper igstandards of living you were talking about. but the other aspect here is we have over 300 ceos here, and that are representing the b-20 which is putting forward to the g-20 a strong agenda of what needs to get done in order to create that growth. so we've got the short term and the long-term. the short term obviously is last week we started talking about remedies for the spanish banks, we talked about the greek vote and that's short term, those are band-aids, getting out of trouble.
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we've got to get back on to a longer term agenda of those things that are going to create growth and one of the things that we got to get serious about is how do we enhance the capital markets, the funding that is going to be needed and required here, the oecd said 70 trillion in infrastructure financing over the next 18 years, we've talked about 46 trillion in the next five years in terms of non-financial corporate securities, that's refinancings and new monies, that's going to have to be raised. where is that money coming from? it's not going to be coming from banks. that is going to be coming from the capital markets. most importantly the fixed income markets and so we've got to get after making sure that we are doing everything we can to enhance that. trade and investment is another major agenda and protection of intellectual property, get the service sector. >> that's the third one. my question was going to be about developing deeper and more liquid capital markets. there's different ways to try to
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approach that, and europe certainly, you know, when you've got negative externalities it's hard to do. does all the regulatory hangover that we're going through now from the financial crisis, has that made our capital markets deeper and more liquid or has it made it tougher? basel 3, dodd-frank, you see where i'm going with that? are we helping or hurting? >> joe, joe, it is a mixed answer to that. we're in the middle of a process and the difficult part is everybody acted individually on their own. in the united states you have dodd-frank and basel 3 and all sorts of components, canada, japan, australia and you've got this unevenness on the regulatory standpoint and we've got to get to a harmonization of all of that, and you know who does that?
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where does that come from? we need to look to the g-20 and hope that we get the signals that we need to say we need to begin a process where we can start to bring some coherence to all the different regulatory. i can be compliant in this market over here and i can be out of compliance in this market over here. the capital markets are global. the capital markets don't understand borders, and therefore the process needs to get a lot better at trying to bring some sort of level playing field to it. >> terry, it's andrew sorkin here. question about s&p and ratings broadly, given what's happening. how do you guys think about what i imagine may be even additional downgrades that could come as a result of all of this, but the self-fulfilling prophecy that it can create? >> well andrew, a credit rating is an opinion about whether it's
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a security or whether it's a sovereign or what have you, and the most important part of any credit rating isn't the rating itself, it's all the annalysis that goes into it. you have all of the criteria that people are being judged by, and it's uniform across whether it's a sovereign or any other kind of security, and all of that information is out there, so that people can see how that rating was determined. now, to an investor, an investor can say, well, i see their opinion, i see how they weighted that and this. i agree. i disagree. it gives them a basis, it gives them a base position from which to work. >> right. >> it's the analysis that's the most important part that goes into it. >> terry, back here at home there's an expectation this week we may hear from moody's on the u.s. banks and there's been a huge cloud that's been over morgan stanley. i'm curious your views ahead of whatever the moody's action is and how this whole situation's
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been handled. you see james gorman and others from morgan stanley come out ahead of these ratings. >> well again a rating is like a mirror. it's putting a mirror up and saying hey here is the information and criteria we're looking at, here are all the issues and you can argue whether you like it or don't like it or whatever, but it is a mirror and it puts a position forward and so look, i mean, whether it's ourselves, with standard & poor's or moody's or whatever it's a reflection of what's going on in a particular industry, a market, a company, a security, and that's a good thing. now unfortunately you may not like the information that you're getting but to an investor, an investor can't have all of this spin. they've got to have real information, substantive information and they can make a decision on what they want to do, but from a ratings
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standpoint you're putting out on opinion. >> okay, terry, thanks for that. >> great. terry we appreciate your time this morning. have fun down there. be careful. good place to meet. >> we got to hope -- this is an opportunity and as the g-20 gets older and the process matures, we've got to make sure that business and government work together and so both from the b-20 and the g-20 we have to find ways to make the longer term agenda work for us. right now the growth issues are hard. >> i know, you didn't schedule it in detroit. have fun as long as you're down there. >> yes. when we come back in the next hour of "squawk box" a huge line-up to break down the european economy and the global risk situation, larry lindsey, peter boockvar, austan goolsbee
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take take a look at a stock to watch this morning, we're just going to talk wellpoint, will pay 90 million, resolve a lawsuit relating to the conversion of its anthem unit to a stock based company, it will cut full year earnings by eight cents a share. we'll watch the hmos in light of what we'll probably know in the next week. >> it could happen thursday. they put out some on thursdays as well so it could be a monday or a thursday. >> we see the wires and it says
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scotus, a big decision, like potus. still to come, larry sey will join us from his thoughts on greek election results and the few of the eurozone and austan goolsby and neel kashkari. so did the country that came in 17th place. let's raise the bar and elevate our academic standards. let's do what's best for our students-by investing in our teachers. let's solve this. in your fight against bugs. ortho home defense max. with a new continuous spray wand. and a fast acting formula. so you can kill bugs inside, and keep bugs out. guaranteed. ortho home defense max.
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a gift from the greeks. >> tell me. >> i figure the greeks even when they bring gifts. >> the pro democratic party in greece seems to have averted an immediate crisis but southern europe's problems aren't over yet. >> we'll break down the european economic headwinds with larry lindsey and austan goolsbee. and global strategy with peter boockvar and neel kashkari. the third hour of "squawk box" begins right now. >> welcome back to "squawk box" on cnbc, first in business world wild. i'm joe kernen along with becky quick and andrew ross sorkin. futures down most of the day,
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the worst levels we've seen when we've run the boards down about a quarter of a percent on the dow and the s&p. >> if you were looking for a big wave of green today you're not getting it at this point. the fears of an eminent greek exit receding from the euro are receding for now. the conservative party come in first, winning enough seats to form a joint government. we'll have more from athens in a moment. in our corporate headlines reports suggest microsoft is going to be unveiling a new tablet computer to boost its new windows 8 operating system and counter apple's ipad. the company inviting media to an afternoon event in l.a. and promising what they are calling a major announcement. india's central bank surprising the global markets today, policymakers are leaving
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interest rates unchanged, same stary for required bank reserves, put them on hold as well. the central bank warning relaxing policy could worsen inflation. there had been widespread expectations for a rate cut. let's go across more than the pond, let's go over to athens to talk about those greek election results, cnbc's michelle caruso-cabrera joins us from there from athens live. michelle? >> the worst case scenario did not happen. the far left party that's threatened to renegotiate the bailout, repudiate the country's debt did not win. you've got peter boockvar coming up later on. he put out a note already this morning and i think he encapsulates it well. what happened with the pro bailout party winning isn't necessarily a positive. it is a lack of a negative. you think the markets are rough this morning? they would have been rougher if we'd seen the worst case scenario, maybe talking about bank runs.
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bankers were fearful of that. bottom line it looks like this country will finally be able to form a government, we're not going to be back here in a month, we believe, going through yet another round of elections. i want to show you the morning newspapers. here is a great irony for a country with awful finances, there are four financial newspapers in greece. in the united states we have the "wall street journal," that's it. here they have four. most of them wanted new democracy to win because they wanted to say in the euro. this one says "message from the polls, we want to stay in the euro." this one says, "greece has closen closen the european course." here is my favorite newspaper because they put out a section in english every day which i find essex extremely helpful and they say the economy gets some breathing room and we're finally going to have a government and this one also says "a breath for the economy, a breath for time."
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looks like we're going to have a government, and then i wanted to translate the communist party newspaper for you, with the hammer and sickle, they have a headline that says "don't worry, we will be a strong opposition that defends the people," and there's an article at the top complaining about somebody who has established a fake twitter account who has tried to undermine the communist party of greece by fake twitter postings and they are quite angry about that. so those are some of the headlines from here. call it bottom line lack of a negative. things could have been worse. we'll see if they can form a government. now it's off to bigger worries such as spain and italy. guys back to you. >> i like that, a breath for the markets. how long can you hold your breath the question becomes. >> right. >> yeah. >> and what are the chances that we ever have a viable economy in greece. we keep trying to, isn't that really the crux of the whole
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matter that eventually try to even service the debt, not even pay it back but to service it, and it can't, all i see is tourism. that's about it, and rightly so i guess. >> which has fallen dramatically in light of the crisis. the receipts are way down and the reason is because people think oh they're going to leave the euro. it's going to get cheaper. why would i pay in euros now. i might as well wait. they've seen a decline in tourism. they have to reform the economy. they're struggling with the central bank. bankers tell me they have not made loans in months and they're told not to make loans because that means only more money from the ecb. ecb is conducting monetary policy for northern europe, not for southern europe, and we learn this in the 1930s in the united states. you need to flood a banking system with liquidity and that is not happening yet in any way, shape or form so they're really going to struggle but that's by design. it's meant to keep the pressure on these guys to actually do
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things fiscally that would be the right path. it's a big chicken and egg game going on. >> thanks, michelle. we've got more on this and we're going to talk about larry lindsey, president and ceo of the lindsey group, former national economic council director. i don't know whether you were predicting a different outcome or not, larry but either way you said it's the same problem just slightly different regardless of who is the winner. it was awful close like a point or two. >> it is the same problem. as my good friend and mentor marty feldstein said last week greece probably on net would have been better off long run outside the euro. its unit labor costs are 25% higher than germany's e that's a lot of squeezing on the cost structure, a loss of austerity just to get back to even. i think they would have been better off if they'd left and
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gun to a drachma and let the drachma depreciate. i think actually longer term europe's worse off, too, and you could see that today in european bond yields. we have surging bond yields in italy and spain but what was particularly interesting is even the german yields went up. why? because the markets figured out samaras won, the germans and other europeans are going to have to throw good money after bad. they're now going to in the end be negotiating some kind of deal to throw some money at greece to keep them going for a little while longer. there's really no way greece is going to get out of this. there's no way greece is going to repay its debts. it's a question of default now or default later with a bigger amount that includes interest. >> it's weird, i don't know, i keep coming to different conclusions, that's what i had the same idea that you're answering debt problems and a
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country is never going to be able to pay the debt they have and you're giving them more debt they'll never repay and sooner or later it comes back to germany through devaluation or whole of europe through a weaker euro and the people that actually are working hard and saving, they're going to end up having their standard of living is going to go down as their currency devalues because they keep throwing their good money at the bad. >> the standard line we hear is that the germans benefit so much that they should send a check to southern europe. that's like telling people, you know, you guys have to work hard and send the money you earn to somebody else so they can buy your products for free. i'm sorry, working to pay somebody else to buy my products is not a winning situation. >> larry, i love that. you wanted the bad guys to win because germany would have been able to punish the bad child,
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better than having the good guys come in that say they're going to do what you ask us to do so then you have us write the checks and it would be better to just have the bad kid down there, just cut him off. >> i'm not rooting for one party or the other, it's up to the greek people to make their choice but in the end it would have been easier for miss merkel to cut off greece if the other guys had won. i think it's going to be very hard for her to negotiate with samar samaras. she's going to have to in the end bend. you had an earlier person on reporting from berlin who said they're not there yet. i really think they may not be there yet but they will be at next week's european summit. they're going to have to give something to the greeks. >> the former u.s. ambassador of germany who said that, larry. >> and he should know, so no, i
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don't think this was much of a solution to anything and again i think you're seeing that in european bond yields across the board. >> i thought andrew was going to, and i didn't think i'd have time for this. liesman gets some bush zealot, a bush appointee, liesman wants us to give money to the imf, wants us writing checks because he thinks buy the world a coke, with he need to come together, we all have an interest in europe surviving so we have to write checks to the imf so the imf can bail out all of europe and now he says he's got zelick on his side and he was a bush appointee. should we be sending our checks over there so the greeks can buy some uzo? >> i have a lot of sympathy for people in greece who really are suffering right now and perhaps
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mr. liesman might want to contribute to one of the charities that's helping out those people. i don't think that should be done through the tax system. the real problem here is that the eurozone is not an optimal currency zone. you can't have greece and italy and spain with ever rising unit labor costs in the same currency zones is germany, where the labor costs have been flat for ten years. it doesn't work, and until they solve that problem, they're going to continue to have larger filsical deficits, the money is going to continue to flow out of greece and italy and spain and northern europe. the target two balances which is a measure of that flow from south to north, it's now up to 700 billion euro. this is the number that was close to zero just a couple years ago.
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so it is deteriorating, it's deteriorating at a faster rate and yesterday's election, while it gives people some breathing room, they can enjoy themselves down in mexico really does nothing to solve the long-term structural problems. >> germany is doing well admittedly and throw in austria and other northern european countries, you can spare the pain. it would be easier if you had the whole world and steve's point was that if we were involved and the rest of the world was involved you got everyone on board you could do some carrot and stick type stuff and since we supposedly know how to fix things we'll offer money as the carrot and then we'll tell them what they need to do to start growing down the road. it won't hurt northern europe as much as it would because we'll be absorbing some of the pain here. does that make sense? i could see what they're saying to some extent.
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>> if i thought that u.s. finances were in great shape and that we hadn't been running a 10% gdp budget deficit for the last now years, quadrupling the size of our central bank balance sheet i might have some sympathy for what steve is saying but frankly, we're in the same kind of problem that europe is, just not quite as far along, and the europeans show no inclination at all to solve the main structural cause of the break between south and north, and that is having the single currency apply to countries that shouldn't be together. you know us subsidizing the tragic decision they made, alan greenspan, central banker and very sympathetic to the euro said last week, he said it was a noble but failed experiment. okay we can debate the noble but it certainly has failed and u.s.
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taxpayers should simply not be asked to bail out a failure. >> we can borrow more money from the chinese and then we can send it to the imf and then -- but i just worry, i was thinking we're the bailout of last resort. but maybe china is the last. sooner or later we have to leave the planet and that's where i get worried, we got to go outside maybe even the solar system to try to find someone -- >> you don't think the martians will come up with any money for the bailout? >> we better find a lot of precious metals on the comet. larry you're very tactful because he has a lot of democratic and republican clients but you're never quite as nasty as i want you to be but thank you, i appreciate it today. >> thanks, joe, have a good day. >> you, too. >> michelle is doing great reporting, by the way. >> she is. >> absolutely. when we come back, global
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there is there is plenty of portfolio risk in europe. joining success peter boockvar, managing director and equity strategist at miller tabak. this is a lack of a negative, not a positive. what do you think are the two options greece has? >> either default again or leave the euro at some point eventually because the debt is so overwhelming for this country especially relative to their anemic or lack of growth that there's no other way for them. it's just a matter of whether it's orderly or disorderly. >> they are looking from what michelle has been telling us, they think they can renegotiate some of the terms, ask for a little more time and leniency
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and able to spend to promote on infrastructure. is that stg that fixes the problem, pushes it how far down the road? >> at some point it pushes it down the road. once the money is spent they're back to square one with 30% to 40% of the country's employment in the public sector that has to give because the private sector can't finance that anymore. it may have to be after a hard default to realize that. 0% of the germans don't want greece out of the euro. they're still faced with the same two choices that they were facing on friday and the election doesn't change that. >> peter, so assuming you're right and the default is what ends up happening. i don't know when your timing on that, what can be done in advance of that to make sure that we don't have a disorderly default, what are the steps that need to be put in place. >> if spain and italy get their
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act together greece can be dealt with in either way way. >> being? >> whether they go or stay or orderly or disorderly. spain and italy ends with the two countries and whether they can figure out a way to grow their economies or not and fix their banking systems, but again we continue to bail out bank bond holders at the expense of taxpayers and as long as that mentality exists this situation is not going to end. >> what if you give the haircut to the banks though, then what? >> at some point bond holders have to contribute here, whether it's a sovereign bond holder or bank bond holder. europe can throw as much money at the problem. to me there's one end game and bond holders have to chip in. >> if you choose either one of them the other one gets it anyway because they're interconnected anyway. it's going to be both of them eventually. should anyone, is anyone having enough money over there, where their own position is strong
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enough to really be throwing bad money down at greece at this point, peter? who has money to spare giving it to greece, with i is not going to ever be able to pay it back? >> they don't. even the germans admit we're doing okay, we have some money here but there's just not enough. >> no, and it would be better to save some of that for countries you could actually maybe fix that might have a chance of repaying it like spain or italy. you might be able to fix them and blowing it on greece i don't know, that's kind of your point i guess, right? >> it's exactly right. the only other scenario is whether central banks, whether it's solely the ecb or others that help out, these guys go down the road of printing money and there are three ways of dealing with debt, paying it down, writing it off, or printing or inflating your way out and it's possible that central banks go that third way and inflate their way out. it's not, there's no good ending to that either but politically that may be the route they
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choose. >> it's cheap to keep greece going compared to france -- sorry, compared to spain and italy. it's kind of cheap. does that make sense that you can maybe prevent things from spiraling in spain and italy, if you don't let that first one fall from greece? maybe that's the rationale from keeping throwing money in the situation and won't get it back. maybe you need to do it so you don't have to deal with the markets that might you know start -- we're seeing it today, 7% in spain. >> the only one that has enough money to deal with this is the ecb and they don't want to go there. the germans don't have it themselves. it's printing money or not printing money. if you want to go down write-downs which is the proper way to go but may not be what they end up doing. >> all right. >> when you're suffocating with this much debt there is no easy
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way out. >> i want to rip the scan off, bikini wax. >> it's the right thing to do. >> it is, take it off. >> got to do it sometime. >> maybe, we'll see. coming up if you're counting on a large inheritance from your baby boomer parents you might want to make sure they're on the same page. and reaction to the greek election from austan goolsbee, former economic adviser to president obama and he made interesting comments around the weekend and neel kashkari head of pimco's global equities. do you know you could save hundreds on car insurance over the phone, online or at your local geico office? tell us bobby, what would you do with all those savings? hire a better ventriloquist. your lips are moving. geico®. fifteen minutes could save you fifteen percent or more on car insurance.
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welcome back to "squawk box," everyone. baby boomers sending a message to their kids, don't count an an inheritance. new survey of wealthy adults by bank of america's u.s. trust, just 55% of baby boomers say it's a priority to leave money for their kids. one out of three said they would rather leave money to charity than to their children. by contrast three out of four wealthy adults under age 46 consider it a priority to leave money for their children. webb simpson winning the u.s. open, the 26-year-old claiming his first major championship at the olympic club in san francisco late night last night if you were staying up watching, a little bit of a surprise there. you see his shot. andrew back over to you. >> i'm getting the sad news from
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my parents about -- >> no money for you. >> no money is coming at all. it's really quite depressing, joe, we can talk about this later. up next we'll talk europe's economic headwinds with austan goolsbee, former economic adviser to president obama and global investment ideas for your portfolio from squawk market master neel kashkari. foragers, those fishermen...w,e for me, it's really about building this extraordinary community. american express is passionate about the same thing. they're one of those partners that i would really rely on whether it's finding new customers, or, a new location for my next restaurant. when we all come together, my restaurants, my partners, and the community amazing things happen. to me, that's the membership effect. diarrhea, gas or bloating? get ahead of it! one phillips' colon health probiotic cap a day helps defend against digestive issues with three strains of good bacteria.
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welcome back to "squawk box" this morning. in the headlines greece's new democracy party beginning talks to try to form a coalition government after yesterday's election. much more reaction in a moment. microsoft setting a major announcement today many expect to be a new tablet computer. such a twice would be designed to compete with apple's ipad and boost demand for microsoft's upcoming windows 8 operating system. the national association of home builders out with its monthly sentiment index at 10:00 a.m. eastern time. economists are looking to are a may reading of 28 that compares to 29 in april. now let's get some more reaction to the election in greece, austan goolsbee joins from us chicago, professor of economic at the university of chicago's booth school of business and
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former chairman of the council of economic advisers. also rick santelli from the cme in chicago and steve liesman on the set, let's start with you, austan, it seems like we're in no better placeen this we were yesterday even though maybe things could have been worse. is that the way to think about this? >> i think that's a way to read it. they almost got sacked then they didn't and anybody going to do a touchdown dance it seemed like a dumb idea. all that happened is they didn't get sacked. >> do you have more hope, less hope, different hope that two, three months from now we talked about a new government forming that we're in any better of aa place? >> marginal. as i say yes all the fundamental problems they still got to deal with the problems. the banking system has major undercapitalization. the economies are try igto hold together in a monetary union
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countries that have really different economies and history suggests that's going to be pretty expensive to the rich countries. >> austan i don't want to speak for steve, he's on the set, can speak for himself. the idea raised earlier the u.s. needs to jump in through the imf. am i overstating the case? >> i think we get there one way or another. i think especially if austan's right that this thing doesn't belong together and ends up breaking up and that's my general point. we can get there a cheaper way or more expensive way. >> austan the politics of mr. liesman's prediction? t >> we know they're terrible. >> if you're going to hold a monetary together without a fiscal union it's going to involve some kind of subsidies from countries like germany and the northern european countries. if they're counting on holding their monetary union together for money from the u.s. and china, i don't think that's a great future. >> rick -- >> austan, are the germans going to hold it together, the finns going to hold it together?
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how does this play out? from they have to hold it together. >> do you think that's what they end up doing? >> i don't know. i've been publicly probably more pessimistic than most, but i wish the skeptics hadn't been getting proven right as this thing was going along. i think it's going to be hard as europe is going to decide how bad do they want the thing to hold together. if they do it's going to cost money and we know that's true unless they want to have massive labor mobility or start running inflation, all of which seem pretty questionable politics in that circumstance. >> austan, ever since you left, when i listen to you i find myself nodding. >> he's nodding off to sleep. >> no, i find myself nodding. you've really come into your own since you got the heck out of dodge, out of d.c.
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>> well i appreciate that. you know the two hours after i left, the u.s. government was downgraded. so that was a bad time. >> i forgot about that. that's right. i'm not going to take your comments out of context like the conservative websites do. both sides really need maybe to go back and look at their own stances over the past year in a lot of these issues and if that's the president saying yeah, you're right, maybe i should have, i'm somewhat to blame for this and the republicans say -- is that your point, the president made a mea culpa? >> it was literally in the same sentence i said the president and the republicans should both have a mea culpa, and they should try to get to a grand bargain. >> see how i asked that in a nonpartisan, nongotcha way. we can work together on this,
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right? >> that's what i hope. we got a fiscal cliff coming in between. >> i know. >> rick, we're watching the futures and they've gotten even weaker, the dow futures are down about 50 points right now. what's happening in i've seen a headline from one of the ecb executive board members they're not going to use the money to bail out the banks directly, the ecb money has to go to the sovereigns and not to the banks. is that part of the problem? >> well i think it's all part of the problem. i think the conversation that joe is having with austan about the mea culpa is part of the problem. you know what? procuring the money stream in a burn factor whether it's two parties in this country agreeing that they're going to do something or the greeks voting almost the right way and putting a coalition together in the end and if you take a step back, all of these issues have no staying power, the problem that arises from these countries needing money, the problems that arise in the united states from the
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demographic time bomb and the entitlements, you could throw more money at it, could have been propped up if they had an unlimited supply of money to burn. so we're going to grapple with this for years and years and years. in the end we are no smarter as peter barton has been pointing out, one of my favorites, we have no solution because there is no solution. these countries can't afford their activities of propping up their societies and we're not a whole lot different. we're just on a different time line, so we're going to grapple with the stories that really don't mean anything like euro bonds, you know, the germans could afford to fix these problems if they wish. but they can't fix what's wrong with greece, they could just pay their bills. >> rick, one of the conversations we were having earlier is divergence between the stock market and what's happening in the bond market. and maybe for the right reasons, is there one that you take over
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the other right now? is there some argument to be made, given where the ten-year is the stock market makes sense or is that crazy talk? >> they're both crazy and both absolutely insane. the fact that we could look at a 1.56 ten-year and think this represents a good reward or equity prices and say we've arrived at 12.6 based on the old-fashioned balance sheet fundamentals, in both instances you have issues that transcend the normal fundamentals of each market. you buy stocks and they go up you can still cash the check. that's all these guys care about. if you draw long-term economic conclusions you're not going to get very far in that regard. >> steve you had some thoughts about this? >> it's been the contention of the germans and other northern european countries that they're not going to give money directly
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to the banks. i don't think that matters a whole lot. it still goes from the governments to the banks themselves and i think the esm itself is limited in that regard but it could play a role in terms of recapitalizing the banks and creating a european wide t.a.r.p. system. remember our t.a.r.p. program we gave it to the strong and the weak. everybody was recapitalized, a whole bunch put in, took back equity which is a whole other problem for the europeans. if you don't take this money out in a certain amount of time you're going to pay a penalty on this and there was this whole program putting money into the banks all at once. i don't think that's going to happen in europe. >> come back and tell me again now, we do it with the imf now, because it will be worse later if we don't do it now. what is the scenario, how does it cost us in the long run? >> think about the breakup of the eurozone. >> that would hurt us more?
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>> probably the best thing i heard was the notion of getting europe in shape so the eurozone could be broken up. you cannot do a whole lot of things now that make sense because of the fragile economic situation in the world and the situation especially in europe right now. >> rick i'm trying to get to the point where i understand and could you see under any circumstances where we give money to the imf for this global bailout? steve says it would be cheaper to do that now and in our best interests long-term or austan, because austan is as tstrident s you are about not doing it. >> it depends how things turn out in november. it's mr. keynesian profile that would be different. i think right now if the current administration pushes for that
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and their argument is it will cost us more in the long run, the american people get a chance to look at it. i don't think it flies. >> don't worry, they won't push for it. this is quixotic in the sense that any political leader would step up and do it. my point is the breakup of the euro, i've covered this for two years now. it's not getting any better. they've not improved the process. the world is living with a large, what's the right word, goiter on the back of their neck. that's where we are and i'm just saying we have to have better solutions and i've not heard anybody come one a better solution. >> steve you were in russia before the default. don't you think the default in hindsight was the best way to give a horrible economy a giant enema? don't you think? >> ugh, we went from bad to worse. >> his was worse than mine so i feel bailed out by rick. >> we'll come back to the bikini wax.
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>> it did help but people took a lot of losses, defaulted on the currency and the debt, depreciated the currency. >> somebody has to take losses. you want all of the people unnamed and you can't really see their face to do it versus the bond holders or the stockholders. if they're involved, too bad. tough luck. >> guys the music is playing us out. mr. goolsbee thank you for joining us this morning. rick and steve thank you to you as well. coming up we'll talk global risk with the squawk market master neel kashkari will join us next and the fed kicks off a two-day meet tomorrow, morning jolson and greg ip will tell us what to expect tomorrow at 6:35 a.m. eastern. we imagined a vehicle that can increase emergency braking power when you need it most. and we imagined it looking like nothing else on the road today. then...we built it.
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global global risk managers shifting their focus from greece to the rest of southern europe this morning, joining us is neel kashkari. neel of course as the head of global equities at pimco and neel this morning we are watching the spanish bond yields pushing above 7.1%. what happens now? >> well, unfortunately this is more of the same, their news obviously yesterday i think your prior best guests were talking about it, better than the alternative but nowhere close to an actual solution to greece or the eurozone as a whole. we'll continue to see half measures. it's easy for us to be critical sitting here in america of what european policymakers are doing.
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they're trying to keep basic stability of the eurozone but trying to keep pressure on the fiscal authorities to make tough choices so that forces them to take half measures. i'm afraid we'll continue to see half measures, actions from the ecb, some fiscal actions taken but probably nothing to quell the crisis once and for all. we'll see extreme volatility likely for the near future. >> this morning we spoke to the former u.s. ambassador to germany and he said the biggest problem they have are the incremental steps, the fact they weren't able to make massive strides like things that happened with t.a.r.p. when you were there. if you continue to see this, is there any way to stop the problem or does it continue to for lack of a better phrase, kick the can down the road and no solution is come up with? >> our base case scenario,
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greece will ultimately exit, notwithstanding the vote, we don't think the vote changes anything. greece will ultimately exit. when does it happen, how orderly or disorderly is it and who follows greece out the door of the eurozone. we think the eurozone will get smaller. the half measures are buying time. it is possible though it's not happening so far, it is possible they can put in place in some of the countries structural reforms to get their economies to grow so if they're able to buy time to improve the fundamentals of some of the core european countries then this can end in a reasonable manner. if they're kicking the can down the road and not making hard choices they're buying time for no reason. as mohammed likes to say it's a bridge to nowhere. we're focused on the downside risks. >> do you think spain is able to recapitalize the banks and stay in the euro? >> our base case scenario spain
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is so large other countries will help them stay in the euro, the core of four and likely more than that but less than the full 17 and so it's obviously a tough situation. in the u.s. we had one treasury department, one federal reserve, we could act on behalf of all 50 states. in europe they have 17 parliaments, 17 agencies that need to reach agreement. it's a much more complex problem in that regard. >> so is this actually the worst case scenario for the longer term to have greece vote to stay in and force europe as larry lindsey was telling us earlier to throw good money after bad? >> i don't think it will force europe to throw much good money after bad. the germans are aware of the greek history. their positive vote is buying some time. i'm not sure it will result in huge checks being written to delay the inevitable in terms of greece. think about the choice the greek people have, austerity and exit. austerity is not a stable equilibrium and it's instable
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because it requires societies to continually say every year society has to say yes we're going to stay on the austerity path. the moment they move to the exit path there's no going back. so right now they're on an unstable path we think they'll move over to the stable path which is also going to be very painful. >> neel i want to talk about 2008 as a model for now, if we think it's applicable. when you think about t.a.r.p., when you think about saving the money market industry guaranteeing that when you think about the fdic and what was virtually a blanket guarantee, all those three things were critical. how do you think about that in the context of what's going on in spain and italy. we have the equivalent of t.a.r.p. last week but we didn't have the other elements. >> are' right, it's well-known, deposit guarantees, funding for the banks, those are three things that can happen. if they happen all together they
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can be powerful. in the u.s. we had a question of the financial system was effectively insolvent, we mutualized the financial system's losses against the american taxpayers. that was the redistribution in a sense. it wasn't fair but we had the ability to do it to stabilize the system. in the case of europe, it's which countries have the debt, which countries are in over their heads and how do you mute aislize it from southern europe across central europe and getting them to agree. we had the constitution, we had the congress, and the executive branch that can act on behalf of all the american people. there are no political body in europe to act on behalf of all of europe to mutualize this debt. that's the political challenge we're facing and why policymakers have been unwilling to take decisive action because they want to keep pressure to reform their economies and make hard choices. >> neel we're watching markets give back the begins they gave
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earlier, despite the greek vote that came in. in the best case scenario set up on friday. what does an investor do herebe up on friday. what does a investor do if you follow pimco's theory that the your ozone will get smaller. >> we've experienced extreme volatility for the last three years as these flares have come back up again. we expect extreme volatility for the next several years. and so in light of that, you know, many clients, many investors ask why don't i sit in cash? i can sit on the sidelines and avoid the whole thing. the problem is the future of the global economy is more likely one of inflation. if you sit in cash, your purchasing power will degrade as prices rise. so in light of that, we think investors should be diversified globally and focused on higher-quality companies and countries which will be more
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resilient. one final comment, a lot of people are debating active management v. passive management. a problem with passive management is a passive index will fall 100%, so the s&p dropped 38% in 2008. a passive index fund dropped 38% in 2008. we think active management to limit the down side is critical. >> now we just need to pick a money manager. if we only knew of a big firm that had the where with jaw. let's just flash the pimco 800 number. >> look behind me, you can see the writing on the wall. >> neel, thank you. >> thanks for having me. >> and then bonds, if we're in an inflationary environment, you don't want to buy a ten-year. >> same 800 number. >> if you do, right. stocks on the move. we're going to head to the exchange. ♪ let's get it started
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♪ let's get it start indeed here ♪ ready or not. you're st. we'll have the stock of the day. you're watching cnbc. ♪
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welcome to the world leader in derivatives. welcome to superderivatives.
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welcome back to "squawk box." jim and david coyne us now. is the q-man out for the whole week? >> i believe so. i think he's taking a much deserved restful vacation with the family, joe. >> excellent. happy father's day. i don't know whether i was able to tell you that before the weekend. >> you too. >> it was pretty good. and the greek thing, we got what we wanted, but boy, that was brief, wasn't it? >> that didn't last too long as so often seems to be the case in this ongoing crisis. the windows of opportunity are very short. >> this was about 66 minutes, right? why we ever thought that anything was more important that is the spain tenure is a little -- >> larry lindsey said we should hope -- the germans could have punished the bad child. now this is the good child and we need to keep pretending we'll
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be able to rehabilitate them. >> we wanted a liquidity event, right? we had the standby headline, gave us about a 3% rally. now because things were okay, they're not going to stand by. >> listen, spain is much more important, we've been saying that, joe, as you well know, you've been talking about it a lot for months and months. this was a near-term fear. it's been resolved to a certain extent, but we're back to worrying about the bigger picture with spain and italy. that being said we had a great week in the stock market. >> who as at cabo san lucas for us? i was there christmas vacation, that place is just dynamite. very they're very happy to have the g-20. >> i liked the greek islands -- i would rather by in rhodes.
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